Wealth tax uncertainty creates ‘anxiety’ and capital flight risk, advisers warn
Tax experts and wealth managers report rise in enquiries due to concerns over chancellor’s taxation plans
UK wealth managers have reported a surge in enquiries from affluent customers after weeks of uncertainty over a potential wealth tax, prompting some to halt their investment decisions and draw up plans to leave Britain.
Chancellor Rachel Reeves has refused to rule out a possible wealth tax in the October Budget, after former Labour leader Lord Neil Kinnock suggested applying an annual levy of 2 per cent on assets above £10mn.
But business secretary Jonathan Reynolds said on Friday that a wealth tax would be “daft” and those demanding one should “get serious”.
Wealth managers told the Financial Times that Reeves’ refusal to quash the speculation, including at an appearance last week in the House of Lords, has created uncertainty for their wealthy clients’ financial planning.
“Although affluent investors might take comfort if the government is ruling out a wealth tax, speculation will simply focus on other forms, including whether capital gains tax will increase and pensions tax reliefs cut,” said Jason Hollands at Evelyn Partners.
Other tax advisers and wealth managers, including RBC Wealth Management, Quilter Cheviot and Canaccord Wealth, also said they had experienced a rise in enquiries over whether the chancellor will raise taxation.
“Clients are increasingly raising concerns about the possibility of a formal wealth tax, and it’s clear the topic is causing anxiety — especially following years of diminishing allowances and threshold changes,” said Ian Futcher, financial planner at Quilter.
Nimesh Shah, chief executive of tax advisory Blick Rothenberg, said he had seen clients and prospective customers question their plans to leave the UK with some delaying investment decisions.
“I have one particular example of a family who moved to the UK five years ago wanting to purchase a valuable home, and they have decided against that, because of the threat of a wealth tax,” Shah said.
“They now feel that having such a significant footprint in the UK reduces their flexibility to leave the UK if a wealth tax is introduced,” he added.
Reeves is under pressure to plug a £20bn-plus hole in her Autumn Budget, widened by recent government U-turns on welfare savings. The chancellor has promised that Labour will not increase levies that “working people pay” while refusing to rule out a wealth tax.
Emma Sterland, chief financial planning officer at Evelyn Partners, said that “a wealth tax would likely accelerate the numbers of wealthy people in the UK choosing to move overseas”.
It would be “especially problematic” for clients who are business owners, “many of whom are already going to be adversely impacted by the increase in capital gains tax and the introduction of a limit to business relief next year”, she added.
Hazel Bowen, a senior wealth planner at Canaccord Wealth, said she had seen an “uptick in queries”, adding that those who are considering restructuring their family wealth “would do well to move forward with this as soon as possible”.
A wealth tax could help Reeves plug the fiscal deficit. Arun Advani, associate professor of economics at Warwick university, said even a 1 per cent annual wealth tax on assets worth more than £10mn could raise close to £12bn.
Wealth tax campaign group Tax Justice UK said it could affect 20,000 people — 0.04 per cent of the population.
However, a report by the think-tank Tax Policy Associates said an “unprecedented wealth exit tax” would be required to “stop large-scale capital flight”.
Fears over such a levy “would trigger a wave of exits” and “deter entrepreneurs and others from coming to the UK”, the think-tank said.
The Office for Budget Responsibility fiscal watchdog warned earlier this month that increased Treasury reliance on a “small and mobile group of taxpayers” was a risk to the public finances.
“Higher earners’ behavioural responses to tax changes are more uncertain and potentially higher than assumed in costings,” it said.
Evelyn Partners said although a wealth tax was considered in the 1970s, the current chatter made “the level of concern more elevated than at any other time in recent history”.
Chris Etherington, partner at consultancy RSM, said some taxpayers responded to a refusal by government to rule out a capital gains tax change by speeding up a sale of their assets.
A Treasury spokesperson said: “The best way to strengthen public finances is by growing the economy — which is our focus. Changes to tax and spend policy are not the only ways of doing this . . . We are committed to keeping taxes for working people as low as possible, which is why at last autumn’s Budget, we protected working people’s payslips and kept our promise not to raise the basic, higher or additional rates of income tax, employee National Insurance or VAT.”